You wrote: "I know that I am thrown off my game plan by taxes (I don’t like playing them, and that sometimes gets in the way of doing what I should be doing)" Do you mean "paying" instead of "playing"?
The typo is almost a Freudian slip worth keeping. "Playing taxes" captures something true for investors with large unrealised gains, tax management does become a kind of game. The question of when to realise, how to offset, what to hold past its fundamental value to defer a liability that is a philosophy within the philosophy, and one Damodaran is right to flag as a blind spot.
Intrinsic value matters, I fully agree. But what I'd add is that the philosophy can't stop there. Two analysts can look at the same business, build perfectly consistent models, and arrive at very different intrinsic values. Neither is necessarily wrong. The difference is in the assumptions, the growth story, the discount rate, the competitive advantage period. What I wish more people did (and what I'll note the professor has always done, his valuations are entirely open) is show the work. Not just the output, but the reasoning behind every input. Because the value you arrive at is only as honest as the assumptions, you're willing to defend.
The "whiplash" observation resonates — investors who lose most dramatically in volatile markets often never had to articulate *why* they held their positions in the first place. At Qarp Fund, we've anchored to free cash flow yield as our lodestar precisely because it forces the "why do I own this?" question at portfolio construction, not during a drawdown. Your point about imitating Buffett being unrewarding is sharp: most investors copy his holdings list, but his real edge was the temperament to hold through multi-year underperformance — that's a philosophy, not a stock-screening tool. — Qarp Fund
Excellent article! It resonates a lot with my own investment journey over the past 20 years, trying out strategies that didn't work for me. This also shows why active stock picking is so hard.
I completely agree with the view that there's no such thing as a strategy that fits everyone. Each investor or trader must learn what works for them, and there will most likely be a strategy that fits.
In my case I finally found my way to beat the markets five years ago when I started building simple momentum-based rotation systems. But this formula will not work for everyone.
The audit removal framing is sharp but it maps more cleanly onto consumer psychology than investment philosophy. Where it connects: the strongest investment strategies also operate past the point where the investor checks them. The danger is that "operating past the point of checking" looks like conviction when the strategy is working and looks like negligence when it is not. The difference between the two is usually only visible in hindsight.
The step most investors skip is Step 4 personal fit. Everyone wants to find the right philosophy in the abstract, but very few sit down and honestly audit what kind of investor their personality actually allows them to be.
The framework I keep coming back to from a macroeconomic lens: most individual investors are not actually choosing between philosophies. They are choosing between the philosophy they aspire to and the behaviour their emotional architecture produces under pressure. Those two are almost never the same person.
Damodaran's "sleep test" is underrated as a diagnostic. If your portfolio is keeping you awake, the problem is rarely the portfolio. It is the mismatch between the philosophy you adopted and the temperament you actually have. No amount of conviction repairs that mismatch. Only honesty does.
The distributional implication worth adding: investment philosophy is also a class variable. Passive indexing is available to everyone in theory. In practice, the patience, capital buffer, and emotional insulation required to stay the course through a 40% drawdown are unevenly distributed. The philosophy that works best on paper often requires a safety net underneath it that most people do not have.
You wrote: "I know that I am thrown off my game plan by taxes (I don’t like playing them, and that sometimes gets in the way of doing what I should be doing)" Do you mean "paying" instead of "playing"?
The typo is almost a Freudian slip worth keeping. "Playing taxes" captures something true for investors with large unrealised gains, tax management does become a kind of game. The question of when to realise, how to offset, what to hold past its fundamental value to defer a liability that is a philosophy within the philosophy, and one Damodaran is right to flag as a blind spot.
"Markets are for the most part right, but make mistakes during periods of uncertainty and change".
Timing of this quote couldn't be more spot on!
Intrinsic value matters, I fully agree. But what I'd add is that the philosophy can't stop there. Two analysts can look at the same business, build perfectly consistent models, and arrive at very different intrinsic values. Neither is necessarily wrong. The difference is in the assumptions, the growth story, the discount rate, the competitive advantage period. What I wish more people did (and what I'll note the professor has always done, his valuations are entirely open) is show the work. Not just the output, but the reasoning behind every input. Because the value you arrive at is only as honest as the assumptions, you're willing to defend.
Always a pleasure reading your work, Prof. Thank you for making your work as accessible as possible. Appreciate it so much!
The "whiplash" observation resonates — investors who lose most dramatically in volatile markets often never had to articulate *why* they held their positions in the first place. At Qarp Fund, we've anchored to free cash flow yield as our lodestar precisely because it forces the "why do I own this?" question at portfolio construction, not during a drawdown. Your point about imitating Buffett being unrewarding is sharp: most investors copy his holdings list, but his real edge was the temperament to hold through multi-year underperformance — that's a philosophy, not a stock-screening tool. — Qarp Fund
Excellent article! It resonates a lot with my own investment journey over the past 20 years, trying out strategies that didn't work for me. This also shows why active stock picking is so hard.
I completely agree with the view that there's no such thing as a strategy that fits everyone. Each investor or trader must learn what works for them, and there will most likely be a strategy that fits.
In my case I finally found my way to beat the markets five years ago when I started building simple momentum-based rotation systems. But this formula will not work for everyone.
This is the part most people miss.
It’s not pricing power. It’s audit removal.
Once the customer stops asking “what is this charge,” the relationship already changed.
That’s not loyalty. That’s surrender.
Principle: The strongest businesses don’t earn trust. They operate past the point where trust is even checked.
The audit removal framing is sharp but it maps more cleanly onto consumer psychology than investment philosophy. Where it connects: the strongest investment strategies also operate past the point where the investor checks them. The danger is that "operating past the point of checking" looks like conviction when the strategy is working and looks like negligence when it is not. The difference between the two is usually only visible in hindsight.
Interesting how often ‘investment philosophy’ is discussed without acknowledging the psychological discipline required to actually follow it.
I just wrote my latest investment thesis:
https://jakeinvest.substack.com/p/my-case-for-strategy?r=4eyl2f
thank you!
Thank you Prof, for making you class material public!
You are enormous inspiration for all of us!
Would love to connect 🙌
I write about Japanese stocks 🇯🇵
Looking forward to following your work!
The step most investors skip is Step 4 personal fit. Everyone wants to find the right philosophy in the abstract, but very few sit down and honestly audit what kind of investor their personality actually allows them to be.
The framework I keep coming back to from a macroeconomic lens: most individual investors are not actually choosing between philosophies. They are choosing between the philosophy they aspire to and the behaviour their emotional architecture produces under pressure. Those two are almost never the same person.
Damodaran's "sleep test" is underrated as a diagnostic. If your portfolio is keeping you awake, the problem is rarely the portfolio. It is the mismatch between the philosophy you adopted and the temperament you actually have. No amount of conviction repairs that mismatch. Only honesty does.
The distributional implication worth adding: investment philosophy is also a class variable. Passive indexing is available to everyone in theory. In practice, the patience, capital buffer, and emotional insulation required to stay the course through a 40% drawdown are unevenly distributed. The philosophy that works best on paper often requires a safety net underneath it that most people do not have.
Do good b by tv cf sf b fact f
Investment philosophy is not a slogan.
It is the filter that stops you from chasing every new regime / guru / backtest / panic.
Without one, the market gets to write your personality.